Governments and Absorption

For English readers, here’s yesterday post in Shakespeare’s language.

Since the 1970 election, only two parties have been in power in Québec: the Liberals and the Parti Québécois. Even if it is possible that another party be elected on September 4^th, the following analysis is rather simplistic by its approach and its conclusions.

Several articles have recently been published regarding the consequences of the election of the PQ on Québec real estate market, such as this article by Allison Lampert or on Maxime Bergeron’s blog.

The situation is very complex and has many variables. We conducted a survey on a few experienced real estate brokers and we thus can conclude the following:

1.      The Plan Nord already attracted foreign companies in the province;

2.     The PQ is partly responsible for the politic instability climate that may induce companies to leave;

3.     The PQ tried very hard to attract new companies in Montréal.

The effect on the business environment is uncertain. The Canadian economy is in relatively good shape and it should go on in this direction. Charest’s Plan Nord is already attracting several foreign companies (Chinese and others) in the province and some are assessing their needs for office space in Montréal. A change in the political climate, or the abolition of this program would force them to put their plans on hold, which would deprive the province of many jobs and Montréal Central Business District of a lot of absorption.

Absorption… namely the net change in physically occupied space between the current measurement period and the last measurement period. Net absorption can be either positive or negative. Preleasing activity is not included in net absorption calculations because pre-leasing does not involve any change in occupancy. In the last thirty years, we have recorded on average 600,000 square feet of annual absorption in the Montréal downtown district. With these numbers, we conducted a small experiment. Statistically speaking, during the years of PQ’s rule, we recorded on average 300,000 square feet less than during the years of a PLQ rule! However, our sample is restricted (thirty years of data on forty year of bipartism) and this average can only be treated as an indicator of the business climate caused by the separatist party.

Montréal is a superb city. Its skyline will change shortly with the construction of new towers near the Bell Center and the near Square-Victoria. During the 1990s, the PQ contributed to the construction of Multimedia City and the E-Commerce Centre. These building parks changed the dynamics of the downtown markets. The PQ government wanted to attract foreign companies and thus offered generous subsidies to the ones that would move in the new complexes. Instead, companies already present in Montréal consolidated their space and moved in, as well as start-up information technology companies. The final effect of this construction boom and fiscal policy is hard to quantify.

The market is already in wait-and-see mode. It is unlikely that a PQ government would initiate a referendum campaign at the dawn of their mandate, but it is clear that the business environment, and the commercial real estate market, will be affected by a change in the government.